Pricing Concepts Flashcards
Price
That which is given up in an exchange to acquire a good or service
Revenue
The price charged to customers multiplied by the number of units sold
Profit
Revenue minus expenses
Return On Investment (ROI)
Net profit after taxes divided by total assets
Market Share
A company’s product sales as a percentage of total sales for that industry
Status Quo Pricing
A pricing objective that maintains existing prices or meets the competition’s prices
Demand
The quantity of a product that will be sold in the market at various prices for a specified period
Supply
The quantity of a product that will be offered to the market by a supplier at various prices for a specified period
Price Equilibrium
The price at which demand and supply are equal
Elasticity Of Demand
Consumers’ responsiveness or sensitivity to changes in price
Elastic Demand
A situation in which consumer demand is sensitive to changes in price
Inelastic Demand
A situation in which an increase or a decrease in price will not significantly affect demand for the product
Unitary Elasticity
A situation in which total revenue remains the same when prices change
Dynamic Pricing
A strategy whereby prices are adjusted over time to maximize a company’s revenues
Yield Management System (YMS)
A technique for adjusting prices that uses complex mathematical software to profitably fill unused capacity by discounting early purchases, limiting early sales at these discounted prices, and overbooking capacity
Variable Cost
A cost that varies with changes in the level of output
Fixed Cost
A cost that does not change as output is increased or decreased
Average Variable Cost (AVC)
Total variable costs divided by quantity of output
Average Total Cost (ATC)
Total costs divided by quantity of output
Average Fixed Cost (AFC)
Total fixed costs divided by quantity of output
Marginal Cost (MC)
The change in total costs associated with a one-unit change in output
Markup Pricing
The cost of buying the product from the producer, plus amounts for profit and for expenses not otherwise accounted for
Keystoning
The practice of marking up prices by 100 percent, or doubling the cost
Profit Maximization
A method of setting prices that occurs when marginal revenue equals marginal cost
Marginal Revenue (MR)
The extra revenue associated with selling an extra unit of output or the change in total revenue with a one-unit change in output
Break-Even Analysis
A method of determining what sales volume must be reached before total revenue equals total costs
Selling Against The Brand
Stocking well-known branded items at high prices in order to sell store brands at discounted prices
Extranet
A private electronic network that links a company with its suppliers and customers
Prestige Pricing
Charging a higher price to help promote a high-quality image
